TLRY - Tilray Fiscal Q2: Extreme Positives And Extreme Negatives

2024-01-09 10:00:59 ET

Summary

• Tilray Brands, Inc.'s fiscal Q2 earnings report shows cost savings program and improved profit margin and cash position.
• Tilray's beverage sales more than doubled YoY, positioning the company as a top player in the alcohol and beverage market.
• Revenue miss and increased long-term debt raise concerns about the company's performance and valuation.
• Dilution is likely to continue hurting investors for a long time.

Medical cannabis firm Tilray Brands, Inc. ( TLRY ) has just reported its fiscal Q2 earnings results, as Seeking Alpha has reported here . Although pre-market price actions can be fickle, the stock is up substantially as of this writing, suggesting that the market likes the report. But let's take a deeper dive in the latest edition of The Good, The Bad, and The Ugly.

The Good

• Tilray highlighted its cost savings program in the fiscal Q2 earnings report , and this showed up in the profit margin and improvement in cash position. Overall, the company is on track to save $30 to $35 million annually, as the HEXO integration matures.
• It is a common trend for the "sin" companies to get into other "sin" products. For many years, we've seen Tobacco companies trying to get into beverages and reduced-nicotine products. Similarly, Tilray has made a variety of beverage acquisitions so far, and the company is beginning to reap the benefits. In Q2, Tilray's beverage revenues more than double YoY as highlighted here by Seeking Alpha. More importantly, the company is now positioned to become a top 15 player in the alcohol and beverage market in the U.S.
• Tilray is spreading its revenue stream nicely across 4 different segments. In Q2 2024, Cannabis, Distribution, Beverage, and Wellness brought in 34%, 35%, 24%, and 7% of the total revenue respectively. In Q2 2023, these numbers were 34%, 42%, 15%, and 9%, respectively, indicating a more spread out revenue stream is likely to be in place as the company matures.

The Bad

• Despite touting cost savings, Tilray's Q2 saw a 14% jump in general and administrative expenses. The fact that selling expense went down nearly 1/4th YoY could be interpreted alternatively as a good sign or bad. It may be good if the synergies from acquisition is leading the company to spend less on selling, but bad if it indicates the company is slowing down on efforts to sell.

• Tilray has almost quadrupled its shares outstanding in the last 5 years, and it doesn't appear to be slowing anytime soon. Shares outstanding according to the Q2 report stands at about 733 million and that means investors have been further diluted away given the 691 million shares at the end of the previous quarter.

The Ugly

• The revenue miss by $1.03 million marks the 9th quarter in the last 12 where the company has missed expectations. A company in a growth spurt is generally expected to be erratic when it comes to EPS, but revenue is always the stronger suit at this stage of a company's life. This brings into question whether the acquisitions made by the company are bringing on the expected results and if expectations should be tempered going forward.

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